Social investing in the wake of the Volkswagen scandal: Have your say

Caught red-handed

On the off-chance you haven’t heard about it, Volkswagen, the German car maker, is in a world of trouble. The company was caught using software to game emissions testing, a flat-out cheating move that affects some 11 million vehicles.

Not surprisingly, shares in Volkswagen tanked as soon as the news broke, down now by as much as 30 percent. Shareholders raced to clear their portfolios of anything connected to the now scandal-scarred car maker. At the same time, in lesser headlines, actor Leonardo DiCaprio vowed to break entirely from investing in any companies that promote the use of fossil fuels and urged others to do the same.

How far does social investing go?

This made us wonder: Should investors — even folks like us who may only have a 401K, a college fund or index funds and the idea is not to make trades — care about the social and environmental responsibility of the companies in which we invest?

It’s a question on many minds, apparently. According to the most recent figures from the Forum on Sustainable and Responsible Investment, some $6.5 trillion in U.S. assets under management now use so-called â€œSRIâ€ strategies: sustainable, responsible and impact investing, up more than 75% year-over-year. What do you think?

Let us know your take in the comments below if social value is a core part of your thinking as you look to save and invest. If not, why not? We value your opinions.

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This and other scandals provide just a “snap-shot picture” of corporate greed. If VW lied/cheated on emissions, what about other areas? How about their financials…are they correct…or is VW just a “house of cards”? Recently Warren Buffet, a Wall Street Darling, found himself immersed in scandal in Nevada. In this case it appears one of the companies Mr. Buffet controls is “gaming” the system to cause electric rates to go up artificially. My local utility had dealings with Mr. Buffet’s “folks” some time back and a DF familiar with the situation told me ….”they are not good people to deal with”…. Thank goodness our utility walked away from a deal with Mr. Buffett…but sadly GE did not….

I believe that ethical investing is very subjective. What I believe is ethical could be challenged by someone else, and vice versa.

Investing for a profit is very difficult as it is today. By applying arbitrary rules in investment selection, that have nothing to do with the underlying profitability of the business, you are essentially limiting yourself to never investing in anything. Your goal as an investor is to earn money, and not to be a moral/ethical arbiter for the world. If you donâ€™t want to invest in certain companies, donâ€™t do it, but you have to realize that what you see as moral or ethical, might be viewed as unethical by someone else and vice versa.

Hmmmm…So ethics be darned?…This may just be the problem in this era of capitalism. And Mr. Buffet and firms he controls have had no shortage of ethics “breaches” but yet remains a “darling” because he “beats the number”. But this is OK because everyone does it?….Sorry… GM’s “ethics breach” caused loss of life and now we have learned that VW had a breach with it’s emissions “work around”…At what point in time do we decide this is not OK and that there is a responsibility in corporate governance to play by the rules…

That might be true–sometimes (like if we’re deciding whether to invest in companies that make guns or alcohol) but VW, BP and others should show us clearly that sometimes “social” metrics affect financial returns.

SASB, the Sustainability Accounting Standards Board, is partnering with companies and going industry-by-industry, researching ESG metrics that historically are financially material. They are publishing reporting guidelines that I hope companies choose (or become required) to follow.

Considering the fuel efficiency of diesel cars -world wide, not just American liberal hippy notions- I don’t think the issue is as big as everyone makes it out to be. In other words we are pinching pennies and failing to see the dollar. I’m not happy with the deception but. In America we will not let cars in that get 70 and 80 mpg—– because of EMITIONS! Seriously.

I’ve thought about this quite a bit. And I’ve determined I’d rather invest for profits and then donate to causes I care aboutor use my free time to volunteer. I think I’m making a much greater impact that way.

At some point don’t you worry that you are wasting your donation dollars.Are you aware of every company that your investment dollars go to, through a fund or whatever. By simultaneously investing in crude oil, with or without your awareness, and donating to a sustainable development NGO, for example, aren’t you most likely funding anti-oil lobbying with money that you earned by investing in oil? Just a thought

There is very little evidence that your choice of stocks makes much difference. It doesn’t have any have any impact on a company’s policies or success. So it doesn’t really change anything in the world.

2) You think socially responsible companies will be more successful.

In other words, investing responsibly will make provide you a better return. There is some evidence for this. Avoiding companies that end up like VW is not good for the bottom line. But it is not always easy to figure out which companies those are.

3) The third reason is as a personal statement.

Think of this as similar to your choice of style in clothes. It makes you feel better to know that your money is invested in companies that reflect your values. You still have the problem of figuring out which companies those are. VW might have been on the list for its “clean” diesel. Not such a good choice.

How you spend your money can probably have much bigger impacts than how you choose to invest it. You have far more power to effect companies as a consumer than you do as a stockholder.

I’m one of the owners of a TDI, and while I find it sad that they cheated, I still think they make a quality product. I doubt you could say that the entire company as a whole is bad, but there were definitely a few people who made very bad decisions.

What about Chevy after their faulty ignition switches, how about bad airbags, and Firestone? For as awful as the VW situation is, lives were not lost in this scandal.

I am planning on investing in VW stock because I believe they still make a high quality product, and a few bad decisions should not reflect poorly on an otherwise good company.

Hi Jo,
Thank you so much for stopping by. So the latest numbers have it at 11 millions cars affected. It will likely cost, at least according to USA Today, around $7 billion for VW to fix.
You comment about other misdeeds by car manufacturers is something a lot of people are talking about right now.

I think buying products for social reasons can make sense, but investing for social reasons would make a lot more sense if we weren’t buying and selling stocks in the secondary markets. Volkswagon doesn’t care whether or not I buy their stock, I’m not buying it from them anyway. They might care whether or not I buy their cars.

Stock prices have some on influence executive pay and therefore executive actions, but the tiny little effect my sales and purchases have on the price doesn’t do anything. The big institutional players who actually can influence corporate actions are chasing profits, not trying to increase corporate responsibility.

I feel very betrayed by VW – I generally think that cheating is either off the cuff (hey, we can make a buck, let’s do it), which bothers me less because people do dumb things sometimes; or the product of a thoroughly corrupt organization, one in which truly everyone IS crooked.

There is no way such a complex software, with physical and mechanical inputs and outputs, was not a formal project with a many-person team and high-level knowledge and active oversight. This is not opportunism or a single isolated bad apple, this is corruption, systemic corruption. There is no way to trust anything in that conpany now.

What a sad end for an iconic company, one that exemplified a happy 70s movement. Though perhaps fitting for a company commissioned by Hitler.

Wait, was I supposed to be talking about investing? Sorry, I’m just so bummed. I hate corruption.

I invest in a socially responsible mutual fund. That’s at least partly because it has reasonable fees and above average performance. But honestly, the best way for people to reform corporations is from the consumer side.

Don’t like pollution? Live closer to work and buy a fuel efficient car. Walk, bike, and take public transit wherever possible.

Don’t like rip off drug prices? Exercise (even if that means taking the stairs at work instead of the elevator) and eat a healthy diet with minimal meat and processed foods, so you won’t need nearly as many pharmaceuticals in the first place.

Yes, I get it, this method of ruthlessly boycotting stuff that you don’t need isn’t 100% effective because some of this stuff you really have to have (i.e. many people simply cannot avoid car ownership or pharmaceuticals altogether.) But I still think people greatly underestimate how much power they really have with their dollars.

I find it interesting that so many people seem to think ethical investing makes no difference when the number of investors that have pulled out of VW due to the unethical business practices could have a devastating effect on their recovery.

There is substantial evidence that ethical investments can be profitable and can make a huge difference. The more people that refuse to finance dodgy gun suppliers or companies stripping Brazilian rainforests in favour of those with a kinder global footprint will obviously increase the influence, but surely people would prefer to know for sure that they are not getting rich at the expense of the billions of people living on less than USD10 a day or the planet.

I think this website (and others like it) owes it to the world to make sure honest information about the impact of investing and banking is clear.

“the number of investors that have pulled out of VW due to the unethical business practices could have a devastating effect on their recovery.”

I don’t think there is any real evidence for this. Every investor who “pulls out” just sells their stock to a different investor who buys in. VW’s stock price in those transactions has gone down, but that appears to be largely irrelevant to its recovery. Its recovery will depend on customers buying its cars, not investors buying its stock.

Where you are right, is that VW is a good example of why ethical investing is often also a smart financial decision. Companies that are ethically challenged tend to have these kinds of incidents. That has a huge impact on people who own their stock.

Perhaps the problem is that we are buying into a myth that buying stock is the same as investing. True investors, those who take an active role in the management of the enterprises they own, can make ethical judgments to some effect. But people who simply buy stock can’t. We aren’t the “owners” of the company in any real sense. The companies are run by people in the finance industry who actually control most of the stock using our money.

Social and ethical investing has historically underperformed the so called “sinner stocks”, such as tobacco, oil, gambling, weapons, sex etc. An investors only task is to maximize her return, not act like a Greenpeace activist.

I’m not looking at this from a social investing perspective.
I’m thinking that the scandal will cause sales of Volkswagen cars to tank. Emissions tests are something that you just don’t lie about. Consumers will now fear that Volkswagen lied about other things (it’s a slipper slope once you get on it).
Gaining the consumer’s trust is a major issue for car companies. Once you’ve broken that trust, customers will leave.

They control under the guise of many smaller companies because the money they earn and money from shareholders allows them to acquire…constantly. And the result is their power grows exponentially. The scary part: their power is not relegated to goods and services; now they’re into politics, which affects policies/laws, and their number 1 goal is to make money for themselves (to grow more profit)…and their number 1s 2s and 3s at the top.

For these companies it’s no longer “enough” to specialize in a trade or product. They’re not like small businesses who’s M.O. is typically to provide income for the business owners and employees, and goods to consumers. The M.O. for these top corporations is to GROW. But unlike a farmer who has to rest land in between crops in order to up the nutrients leached from previous plantings, these guys in their quest for growth don’t care to wait and do things properly. They decide to go outside of their initial niche, and get into other ventures such as real estate, politics, buying up other farmers’ (companies) lands, who are just tired of an unfair fight…or who are also looking for a juicy buck.

If a company’s only goal is to constantly grow at crazy spreads, drastic measures are taken and either that company grows, sells to another company in the same breakneck race, they fail, or we fail.

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